UK: Financial Regulatory Developments (FReD) - 29 November 2013

UK Government and Parliament

Government

Government and regulators to examine Co-op: Treasury has
announced the Government, PRA and FCA intend to use their powers
under the Financial Services Act 2012 to investigate activities at
the Co-operative Bank. (Source: Government and Regulators to Examine
Co-op)

Parliament

Parliament to cap payday loans: The Government is introducing a
further amendment to the Financial Services (Banking Reform) Bill
that will introduce a cap on the overall cost of payday loans. The
Bill has continued its Parliamentary process and is still in the
Report stage in the House of Lords. (Source: Parliament to Cap Payday Loans and Bill Continues Parliamentary Process)

FPC to review use of leverage ratio: Mark Carney, governor of
the Bank of England (BoE), has confirmed, in a letter replying to a
request by the Chancellor of the Exchequer, that BoE's
Financial Policy Committee (FPC) will carry out a review of its
powers of direction over the leverage ratio once the Basel
Committee, in early 2014, has completed the relevant final global
standards. Carney finds that FPC should be able to vary the
leverage ratio in line with changes to standards on risk weighting.
He also confirmed that the review will assess how the leverage
ratio should apply to ring-fenced banks. The Chancellor has also
asked that, should the review recommend an earlier or stricter
implementation of the leverage ratio, evidence be provided on how
this would contribute to financial stability in the UK. (Source: FPC to Conduct Review into Leverage Ratio)

Office of Fair Trading (OFT)

OFT updates on payday lending review: OFT's latest update on
the payday compliance review confirms that 19 of the leading 50
payday lenders have now left the market. Three firms had their
licences revoked and four surrendered theirs. OFT is investigating
another six and is reviewing detailed evidence on a further 15.
(Source:
OFT Updates on Payday Lending Review)

UK Financial Services and Markets Regulators

Financial Conduct Authority (FCA)

FCA fines for client money breaches: FCA has fined SEI
Investments (Europe) Limited £900,200 for breaches of the
client money rules over a five-year period. It found numerous
failings which indicated the firm had failed to arrange adequate
protection for client money, including:

failure to perform internal reconciliations;

failure to deal promptly or properly with shortfalls or
excesses it identified;

not submitting accurate client money and assets returns;

not training employees adequately; and

failing to ensure it kept accurate records and accounts.

FCA was concerned at the breadth of the failings and the length
of time they lasted. SEI itself did not identify the problem,
despite the high levels of industry awareness at the time of the
importance of complying with client money requirements. (Source: FCA Fines for Client Money Breaches)

FCA to carry out comparison website review: FCA has announced it
will carry out a thematic review of price comparison websites for
motor, home and travel insurance products. The survey will cover 14
websites, and the review will include considering:

FCA updates on payday lending: FCA has confirmed the Government
plans to introduce a cap on the cost of credit. It commented it
also wants to require a mandatory affordability check for each
loan, cap rollovers to two and limit the number of times a payday
lender can "dip into" bank accounts for payment. (Source:
FCA Updates on Payday Lending)

FCA updates on EMIR: FCA has updated its pages on the European
Market Infrastructure Regulation (EMIR) to remind firms of new
publications, and to stress the need for counterparties to have a
legal entity identifier for reporting to trade repositories from 12
February 2014 (Source: FCA Updates on EMIR)

FCA clarifies dealing commission rules: FCA has published a
consultation paper that proposes changes to clarify what goods and
services an investment manager can acquire bundled in the dealing
commission paid to brokers. Its recent thematic review on conflicts
of interest between asset managers and their customers found
instances of firms using the dealing commission to pay for services
that did not meet the criteria for acceptable research, such as
corporate access or market data services. When parts of the latter
could have qualified as acceptable research, firms did not
disaggregate those parts from non-research ones, which should not
be paid with the dealing commission.

FCA proposes the following changes to the Handbook:

clarifying what constitutes exempt research and introducing a
presumption that a good or service is not exempt research, and
therefore cannot be paid for as part of the dealing
commission;

adding corporate access to the list of goods and services that
are not exempt; and

providing guidance on FCA's expectations where exempt and
non-exempt goods or services are purchased together.

FCA updates on broker-operated power trading: FCA has updated on
progress on the review that brokers offering trading services in
physically settled gas and power forwards are carrying out to
establish the appropriate classification of their systems under the
Markets in Financial Instruments Directive (MiFID). At the time it
announced the review, in September, it said it expected brokers to
make the changes necessary to differentiate clearly between their
multilateral trading facility (MTF) and non-MTF services, on an
appropriate basis, by 16 December 2013. FCA has now decided to give
firms until 12 February 2014. (Source: FCA Updates on Broker-Operated Power
Trading)

Prudential Regulation Activity (PRA)

PRA warns about insurers' valuation risk: PRA has issued a
reminder of the need to comply with requirements on prudent
valuation. It has identified insurers where the assessment of
valuation uncertainty is not sufficiently robust. This failure is
exacerbated by poor governance, inadequate documentation of
policies, and poor control over models. (Source: Valuation Risk)

Upper Tribunal (Tribunal)

Tribunal backs FCA on traded endowments: The Tribunal has
confirmed FCA's determination that Westwood Independent
Financial Planners breached Principle 7 and various Conduct of
Business rules in respect of its sales of geared traded endowment
policies. It also confirmed FCA's penalty award of
£100,000. The firm had tried to argue that FCA's case
focused only on gearing, which is not regulated. FCA said, and the
Tribunal agreed, that the gearing was an ancillary aspect of
business in relation to plans that constituted designated
investments. The Tribunal investigated FCA's allegations of
rule breach and concluded the firm had not made clear
communications to enable customers to understand the product risks.
FCA welcomed the decision, noting the firm has now gone out of
business. (Source: Tribunal Backs FCA on Traded Endowments and FCA Welcomes Tribunal Decision)

Other Regulators/Authorities/Industry Associations

Finance and Leasing Association (FLA)

FLA publishes good practice guidelines: FLA has published good
practice guidelines in respect of customers who get into difficulty
paying second charge mortgages. (Source: FLA Publishes Good Practice Guidelines)

Financial Action Task Force (FATF)

CFATF concerned over Guyana and Belize: The Caribbean FATF
(CFATF) has called on countries to consider imposing
countermeasures on dealings involving Guyana and Belize, following
concerns about these jurisdictions' anti-money laundering and
prevention of terrorist finance laws. CFATF calls are not
officially endorsed by FATF but nevertheless contain important
information. (Source: CFATF Concerned Over Guyana and Belize)

International Organisation of Securities Commissions
(IOSCO)

IOSCO writes to Commission on CCP recognition: IOSCO's
Asia-Pacific Regional Committee has written to the Commission on
equivalence assessments for the recognition of non-EU central
counterparties (CCPs) under EMIR, noting that:

Asia-Pacific jurisdictions have based their regulation of CCPs
on the international standards set by the Principles for Financial
Market Infrastructures;

equivalence assessments should be conducted by reference to
outcomes;

internationally-consistent solutions should be found to bridge
any differences between EU and non-EU CCPs;

there is a risk that conditions imposed for recognition may not
be relevant for a non-EU CCP. Non-EU CCPs may not operate in the EU
markets and may only serve EU institutions in respect of their
operations in the CCPs' domestic markets. Conditions that are
not relevant to them would have the effect of reducing the service,
or increasing its cost, to EU institutions in the Asia-Pacific
region; and

the Commission should adopt an implementing act to extend the
transitional relief from the new capital requirements legislation
by a further six months, so that non-EU CCPs continue to qualify as
qualifying CCPs while they are still waiting for recognition under
EMIR.

AIFM Directive Implementation
conference: Rosali Pretorius will be speaking at this
Infoline conference in London in December. Dentons clients and
contacts can get a 20% discount by quoting VIP code FKM62678EMSPK
when registering.

Enforcement and Litigation

Court of Appeal dismisses interest rate swap
appeal: Richard Caird and Kattalin Truman have written a
briefing on the Court of Appeal judgment in the appeal by Mr Green
and Mr Rowley against the decision that RBS had not missold an
interest rate swap. (October 2013)

On 26 July the FCA published its long-expected consultation paper on the extension of the SMCR to all FCA-authorised firms. The so-called "core regime" introduces the key concepts of regulator-approved senior managers, firm-approved certification staff and conduct rules applicable to virtually all staff.

As the founding Partner of the Europe-Iran Forum, Dentons Europe will once again support this year’s event. This compelling event which explores all Iran-related topics will take place in Zürich on 3rd and 4th October.

The opening speech will be delivered by John Andrews, Consultant Editor of The Economist. This event will bring together at least 500 business leaders and policymakers who set the agenda for Iran’s post-sanctions growth and development . There will be two days of networking and collaboration.

The event will include a number of prominent speakers from Europe and Iran. Four European Ambassadors to Iran have also been confirmed as speakers.

Dentons Global Real Estate Group is delighted to be exhibiting once again at EXPO REAL, the International Trade Fair for Property and Investment which takes place on 4-6 October, 2017 in Munich, Germany.

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Come and meet with Dentons legal advisors from China, Europe, the UK and the US on trade stand:

In our report "The next frontier - the future of automated financial advice in the UK", published in April, we noted that a key regulatory challenge for firms in providing automated advice is understanding...

In the first half of 2018, two major new pieces of regulation will "go live" as the revised Payment Services Directive and the General Data Protection Regulation come into effect from January and May respectively.

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